Tuesday, 26 May 2015

I’ve been out of action for
most of the time since the UK General Election. Here, just in time for tomorrow’s
Queen’s Speech setting out the new Conservative majority government’s
legislative programme, is my somewhat belated reflection on the outcome, which was
clearly devastating for both the Labour Party and the Liberal Democrats.

From an economic perspective,
the Conservative party had the strongest hand of cards to play, in large part
because of fortuitous circumstances. I remain of the view that phase one of Chancellor
George Osborne’s fiscal policy regime from 2010 to 2012 delayed the economic
recovery. But whether by luck or judgement the inevitable upswing came at just
the right time politically. Better still for Mr Osborne, the improvement in aggregate
demand coincided with, and was supported by, a slump in global oil prices which
caused consumer price inflation to eventually fall to zero before polling day.
As result, an economy experiencing an unprecedentedly long period of weak productivity
growth and anaemic nominal average pay rises began to deliver real wage gains
that mimicked what would be achieved if productivity was increasing in line
with the historical trend. Add in the fact that the flip side of low-productivity
and low nominal wage growth was a surge in employment to a record high rate and
a positive economic narrative was there for the taking, even if government policy
had actually done little to underpin it. As the Chancellor and the Prime
Minister David Cameron have proved therefore, it does pay to put lipstick on a
pig.

The consequence of all this
is that the other main English political parties were probably on an electoral
hiding to nothing, albeit they also had to contend with other factors that
continue to bedevil them.

Nick Clegg and co., for
example, remain in denial that they made the wrong call in entering a formal
coalition with the Conservatives in 2010 rather than offer support in a looser
form that would not have meant ditching key manifesto pledges. The Lib Dem poll
ratings throughout the past five years showed many people considered this the
action of unprincipled careerists who seized a once in a lifetime opportunity
to gain high public office. And although there are still some who argue that the
experience of life under an untrammelled Conservative majority government will demonstrate
the positive restraining role played by the Lib Dems after 2010, this
ignores the fact that the coalition formed the bridgehead for this year’s
Conservative victory. The only hope for the rump of Lib Dem MPs is to depart
from the so-called Orange Book neo-liberalism that led them to disaster under Clegg
and choose a leader who will tack back to the centre-left ground that served
them well until the mid-2000s.

The task facing the Labour
Party is far more difficult. Ed Miliband failed to appeal either to the party’s
one time working class core – most notably, though far from exclusively, in
Scotland - or to middle England. While much has been said about Miliband’s
personality as a factor in this the key dilemma is that traditional social democracy
is a hard sell in 21st century England which has bought into a
post-Thatcherite north American view of the world that broadly tolerates marked
income inequality, scorns welfare recipients and is sceptical of the merit of any
form of tax funded social provision other than the NHS. Whoever leads the Labour
Party from this autumn will have little option but to build a policy platform that
reflects this dominant ideological reality; simply confronting it with pious
denigration will not work, as Miliband found to his cost.

However, a more coherent centrist
policy platform is unlikely on its own to challenge the current dominance of
the Conservatives. The necessary additional condition is an event big enough to
demolish the Conservative’s reputation as being the party of competent economic
management.

Throughout my adult lifetime
there have been periods when one or other of the two largest political parties
has been described as ‘the natural party of government’. In both cases supposed
perennial supremacy has been swept away almost overnight by economic events.
John Major’s Conservative government lost its reputation for economic
competence during the ERM crisis of 1992. The global financial crisis of 2008 did the
same for Gordon Brown’s labour government. The fact that in both cases these
governments made the correct policy calls is immaterial. The (misguided) public
perception was that the government in charge either caused these crises or
mishandled the aftermath.

As night follows day there
will come a time when the current Conservative government will suffer a hit to
its economic reputation too, whether self-inflicted (perhaps a hubristic
approach to fiscal austerity, or in the welter of the forthcoming EU
referendum) or by way of an external shock to the system. The bad news for the opposition
parties is that no-one knows when that day will come – next month, next year,
next decade. All they can do is prepare so as to be in a position to offer a
credible political alternative when the tide finally turns.

Wednesday, 13 May 2015

The Office for
National Statistics (ONS) has this morning released the latest set of UK labour
market data, mostly covering the three months January to March 2015.

This month’s
labour market figures bring good news for jobseekers and wage earners alike.
Another large quarterly increase of 202,000 in the number of people in work in
the UK has lifted the employment rate to a new record high of 73.5%. More than
two-thirds of the additional jobs are full-time, mostly for employees. The
unemployment rate meanwhile has fallen to 5.5%, including a substantial fall of
50,000 (to 588,000) in the number of long-term jobless. Despite this, the
overall quarterly fall in unemployment (35,000) is modest compared to the rise
in employment due to a corresponding rise of 167,000 in the number of people
participating in the labour market. Part of this latter rise is in turn due to
a fall of 69,000 in the number of economically inactive people of working age.

With the unemployment
rate edging closer to the pre-recession low (5.2%) and both employment and
vacancies (up 34,000 to 745,000 in the quarter) at record highs, there is also
clear evidence that wage growth is at last gaining momentum. The rate of growth
of average regular weekly pay (excluding bonuses) has increased from 1.9% to
2.2% against a backdrop of zero price inflation. The increase is far higher in
the private sector (2.7%) than the public sector (0.9%). Most encouraging of
all, however, pay is rising fastest in low wage sectors, averaging 3.1% across
wholesaling, retailing, hotels and restaurants, offering a welcome boost to
real wages for the lowest paid workers.